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New federal rule expanding short-term, limited-duration pauper plans

Trump Administration works to give relief to Americans facing high premiums, fewer choices

U.S. Department of Health & Human Services, February 20, 2018

In direct response to President Trump’s October 2017 Executive Order, the Departments of Health and Human Services (HHS), Labor, and the Treasury (the Departments) issued a proposed rule today that is intended to increase competition, choice, and access to lower-cost healthcare options for Americans. The rule proposes to expand the availability of short-term, limited-duration health insurance by allowing consumers to buy plans providing coverage for any period of less than 12 months, rather than the current maximum period of less than three months. The proposed rule, if finalized, will provide additional options to Americans who cannot afford to pay the costs of soaring healthcare premiums or do not have access to healthcare choices that meet their needs under current law

“Americans need more choices in health insurance so they can find coverage that meets their needs,” said Health and Human Services Secretary Alex Azar. “The status quo is failing too many Americans who face skyrocketing costs and fewer and fewer choices. The Trump Administration is taking action so individuals and families have access to quality, affordable healthcare that works for them.”

“Americans who find themselves between jobs or simply can’t afford coverage because prices are too high will be helped by President Trump’s Healthcare for All Executive Order,” said Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma. “In a market that is experiencing double-digit rate increases, allowing short-term, limited-duration insurance to cover longer periods gives Americans options and could be the difference between someone getting coverage or going without coverage at all.”

https://www.hhs.gov...

CMS Fact Sheet: Short-Term, Limited-Duration Insurance Proposed Rule
https://www.cms.gov...

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Proposed Rule: Short-Term, Limited-Duration Insurance (Department of the Treasury; Department of Labor; Department of Health and Human Services)

Federal Register, to be published February 21, 2018

Summary

This rule contains proposals amending the definition of short-term, limited- duration insurance for purposes of its exclusion from the definition of individual health insurance coverage. This action is being taken to lengthen the maximum period of short-term, limited- duration insurance, which will provide more affordable consumer choice for health coverage.

Short-Term, Limited-Duration Insurance

Short-term, limited-duration insurance is a type of health insurance coverage that was
designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another plan or coverage. Although short-term, limited-duration insurance is not an excepted benefit, it is exempt from the PHS Act’s individual-market requirements because it is not individual health insurance coverage. Section 2791(b)(5) of the PHS Act provides “[t]he term ‘individual health insurance coverage’ means health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance.”

Benefits

Consumers who would be likely to purchase short-term, limited-duration insurance for longer periods would benefit from increased insurance options at lower premiums, as the average monthly premium in the fourth quarter of 2016 for a short-term, limited-duration policy was approximately $124 compared to $393 for an unsubsidized PPACA-compliant plan. This proposed rule would also benefit individuals who need coverage for longer periods for reasons previously discussed in the preamble, such as needing more than 3 months to find new employment, or finding PPACA-compliant plans to be unaffordable. Individuals who purchase short-term, limited-duration insurance as opposed to being uninsured would potentially experience improved health outcomes and have greater protection from catastrophic health care expenses. Individuals purchasing short-term, limited-duration policies could obtain broader access to health care providers compared to those PPACA-compliant plans that have narrow provider networks.

Issuers of short-term, limited-duration insurance would benefit from higher enrollment. They are likely to experience an increase in premium revenues and profits because such policies can be priced in an actuarially fair manner (by which the Departments mean that it is priced so that the premium paid by an individual reflects the risks associated with insuring the particular individual or individuals covered by that policy) and are not required to comply with PPACA medical loss ratio requirements for group and individual health insurance coverage.

Costs and Transfers

Short-term, limited-duration insurance policies would be unlikely to include all the elements of PPACA-compliant plans, such as the preexisting condition exclusion prohibition, coverage of essential health benefits without annual or lifetime dollar limits, preventive care, maternity and prescription drug coverage, rating restrictions, and guaranteed renewability. Therefore, consumers who switch to such policies from PPACA-compliant plans would experience loss of access to some services and providers and an increase in out-of-pocket expenditures related to such excluded services, benefits that in many cases consumers do not believe are worth their cost (which could be one reason why many consumers, even those receiving subsidies for PPACA-compliant plans, may switch to short-term, limited-duration policies rather than remain in PPACA-compliant plans). Depending on plan design, consumers who purchase short-term, limited-duration insurance policies and then develop chronic conditions could face financial hardship as a result, until they are able to enroll in PPACA-compliant plans that would provide coverage for such conditions.

Because short-term, limited-duration insurance policies can be priced in an actuarially fair manner, subject to State law, individuals who are likely to purchase such coverage are likely to be relatively young or healthy. Allowing such individuals to purchase policies that do not comply with PPACA, but with term lengths that may be similar to those of PPACA-compliant plans with 12-month terms, could potentially weaken States’ individual market single risk pools. As a result, individual market issuers could experience higher than expected costs of care and suffer financial losses, which might prompt them to leave the individual market. Although choices of plans available in the individual market have already been reduced to plans from a single insurer in roughly half of all counties, this proposed rule may further reduce choices for individuals remaining in those individual market single risk pools.

The Departments anticipate that most of the individuals who switch from individual market plans to short-term, limited-duration insurance would be relatively young or healthy and would also not be eligible to receive APTC (Advance Premium Tax Credit). If individual market single risk pools change as a result, it would result in an increase in premiums for the individuals remaining in those risk pools. An increase in premiums for individual market single risk pool coverage would result in an increase in Federal outlays for APTC.

The Congressional Budget Office estimates that 3 million people will drop coverage in 2019 from the individual market and premiums will increase 10 percent on average, as a result of the change to the individual shared responsibility payment.

https://federalregister.gov...

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Comment:

By Don McCanne, M.D.

The Trump administration has released a rule that will allow individuals to purchase a short-term, limited-duration insurance plan for a period less than twelve months, extending the current limit which is less than three months. What are these plans, and why does the administration believe that they should be made more readily available?

In 2016 the average monthly premium for a short-term, limited-duration plan was $124 compared to $393 for an unsubsidized PPACA-compliant plan. The very low premium should give you a hint that you are not buying very much protection. In fact, "short-term, limited-duration insurance policies would be unlikely to include all the elements of PPACA-compliant plans, such as the preexisting condition exclusion prohibition, coverage of essential health benefits without annual or lifetime dollar limits, preventive care, maternity and prescription drug coverage, rating restrictions, and guaranteed renewability." People who need health care would likely face financial hardship under these plans. Also, younger, healthier individuals would likely be attracted by the low premiums and leave the PPACA-compliant plans, concentrating risk in the compliant plans resulting in higher premiums for those who remain. The coverage is so poor that the rule states, "it is exempt from the PHS Act’s individual-market requirements because it is not individual health insurance coverage." These are pauper plans. They provide neither guaranteed health care access nor financial security in the face of medical need.

HHS Secretary Alex Azar says, "The status quo is failing too many Americans who face skyrocketing costs and fewer and fewer choices," so they are making available an additional choice of very cheap pauper plans.

CMS Administrator Seema Verma says, "In a market that is experiencing double-digit rate increases, allowing short-term, limited-duration insurance to cover longer periods gives Americans options and could be the difference between someone getting coverage or going without coverage at all," a choice for some between a pauper plan or nothing at all.

The goal was affordable health care for all, not affordable private health plans no matter how worthless they are. We need to replace Congress and the administration with people who understand and care about the difference.

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